Quadrangle Wins LP Vote, Can Continue Investing

The Quadrangle Group will be allowed to invest the final $500 million of its $2 billion second fund, after a “significant majority” of limited partners voted to continue the commitment period, peHUB has learned from LP sources. A firm spokesman declined comment.

For the uninitiated, Quadrangle’s investors had until this past Friday to vote in favor of ending the fund’s investment period, based on the February departure of “key man” Steve Rattner (who left to become Obama’s auto czar). Such a move would have precluded Quadrangle from adding new portfolio companies, although it would have been allowed to re-invest in existing ones (including add-on transactions).

LPs rarely invoke such privileges, due to concerns that ending an investment period could cause an exodus of firm personnel — thus leaving existing investments unattended. But Quadrangle was a special case. Not only was Rattner the firm’s public face, but he also was the primary contact with many of its larger limited partners. Moreover, Rattner has been implicated as at least a tangential part of the pay-to-play scandal that has engulfed the New York State Common Retirement Fund — although no formal charges have been brought against him.

What all this meant was that LPs had special leverage over Quadrangle, and they used it. As we previously reported, Quadrangle had granted several concessions to investors by last weekend, including a reduction in management fees. It then sweetened the pot even more, after new allegations surfaced that Quadrangle had used disgraced “placement agent” Hank Morris to win fund commitments from public pensions in places like New Mexico and New York City.

Late Friday, New York City Comptroller William Thompson announced that his system would vote against continuing Quadrangle’s investment period, and NYSCRF followed suit (announcements that I’d think would violate the systems’ confidentiality agreements with Quadrangle). Other LPs I spoke with that evening believed that the “concession consortium” would hold, but admitted that the late flurry of allegations against Quadrangle — particularly that it concealed Morris’ involvement from NY City officials — could tip the balance.

Such fears, however, seem to have been unfounded. Quadrangle is alive and kicking, even though it will certainly have additional questions to answer in the days and weeks ahead…

Update: NYC’s Thompson released a statement late Sunday afternoon, saying he is “disappointed that a majority of Limited Partners did not see fit to vote to terminate the investment of monies to a fund that is under such a cloud and stand firm in my position that the City Pension Systems acted appropriately in voting to terminate any such further investments.”